Chevron CEO calls for compromise on energy, climate demands

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Published: Feb 13, 2007 9:18 p.m. ET

Last Updated: Feb 14, 2007 7:19 a.m. ET

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HOUSTON (MarketWatch) -- Opposing political parties, energy companies and environmentalists must move towards the center in order to meet rising U.S. energy and environmental demands, Chevron Corp (CVX) chief executive David O'Reilly said Tuesday.

Rapidly rising consumption will only be met through a combination of energy conservation efforts, increased drilling for hydrocarbons and the development of alternatives, he said. The confrontational climate generated by unprecedented earnings amid rising energy prices, accompanied by growing concern about global warming, must give way to cooperation, he said.

"Our problem today is that energy policy in this country has for too long defaulted into predictable positions - Republicans against Democrats, business against environmentalists, hydrocarbons versus renewables, federal preferences versus states' rights," he said. "We need to bridge these divides."

In a widely-quoted speech two years ago, O'Reilly, head of the second-largest U.S. oil company, said that the era of cheap oil was over, as resources were becoming harder to find fast enough to meet runaway demand and producing countries tightened control over assets. He called for the U.S. government to develop an international energy policy in order to help meet the country's needs.

Two years later, resources are still in tight supply, although energy has stepped to the forefront of the political debate as popular opinion piles up against energy companies that have racked up record profits on the back of soaring oil prices and buoyant global demand. Increasing awareness about global warming has also made previously skeptical oil companies directly address the issue.

Exxon Mobil Corp. (XOM), which under its former leader Lee Raymond was a firm skeptic about the link between fossil fuel combustion and global warming, has finally recognized the role human activity plays in climate change under current chief executive Rex Tillerson. A growing number of experts, lawmakers and company executives are voicing support for federal legislation that would require electric utilities to reduce emissions of greenhouse gases.

More, Not Less, Oil And Gas

The Chevron executive called climate change "a huge challenge for all of us." He concurred with others in the industry that the private sector, policymakers and the scientific community should work together to create a framework for managing carbon dioxide emissions "based on rational, cost-effective and risk-adjusted solutions."

But in another parallel with the views of Exxon and others in the industry, O'Reilly said part of the solution in bolstering energy security for the U.S. lies in investing more, not less, in traditional sources of energy.

"Hydrocarbons are the most plentiful and economic forms of energy that we have," he said. "And the fact is, even if the use of renewable sources doubles or triples over the next 24 years, we will still depend on fossil fuels for more than 80% of global energy demand."

He said new technology has made drilling in once unthinkable areas - such the deepest waters in the Gulf Of Mexico - possible and renewed a familiar call for Congress to open up access to the Outer Continental Shelf.

"It's the height of hubris to declare 85% of the Outer Continental Shelf off-limits, while also criticizing the level of oil imports and calling for American energy independence," O'Reilly said.

The Chevron executive said current data about the prospects of the Outer Continental Shelf is very limited and based on technology that's more than 25 years old. "We've become paralyzed in a debate driven by entrenched positions and fuzzy data," he said.

As an example of how advanced technology has dramatically shifted the oil exploration goalposts, O'Reilly cited Chevron's "Jack" field. The most eagerly watched oil prospect in the deepwater U.S. Gulf of Mexico passed a production test with flying colors last September, paving the way for development of an emerging geological play that could contain billions of barrels of hydrocarbon reserves.

The well is located in what operators of crude oil and natural gas projects call the "lower tertiary," an ancient rock layer that extends for hundreds of miles beneath the Gulf of Mexico's seabottom. "The work at Jack was a great example of what can be accomplished when companies are given the opportunity to deploy investments and innovation," said O'Reilly.

Questions Bush's Ethanol Call

As well as delivering the industry's familiar battle cry for more access to domestic oil and gas resources, O'Reilly took issue with President George W. Bush's goal of reducing gasoline consumption in the U.S. by 20% in ten years by raising the use of alternative fuels like ethanol in the U.S. fleet mix. He said this goal couldn't be met with corn-based ethanol alone and will require technological advances that are still very much in the development stage.

"A more pragmatic approach suggests setting a goal of E-10, or 10% ethanol, on average per gallon of gasoline," he said. "That would effectively triple the volume of ethanol that was used in transportation fuels in 2006."

O'Reilly said this proposal could be achieved with the existing vehicle fleet in the U.S., is technologically viable and could lower imports of petroleum products in the U.S. by more than 25%. Bush's plan calls for a sixfold increase in the use of nonpetroleum gasoline.

(This article was originally published Tuesday.)

HOUSTON (MarketWatch) -- Opposing political parties, energy companies and environmentalists must move towards the center in order to meet rising U.S. energy and environmental demands, Chevron Corp (CVX) chief executive David O'Reilly said.

Rapidly rising consumption will only be met through a combination of energy conservation efforts, increased drilling for hydrocarbons and the development of alternatives, he told an industry audience at the Cambridge Energy Research Associates conference. The confrontational climate generated by unprecedented earnings amid rising energy prices, accompanied by growing concern about global warming, must give way to cooperation, he said.

"Our problem today is that energy policy in this country has for too long defaulted into predictable positions - Republicans against Democrats, business against environmentalists, hydrocarbons versus renewables, federal preferences versus states' rights," he said. "We need to bridge these divides."

In a widely-quoted speech two years ago, O'Reilly, head of the second-largest U.S. oil company, said that the era of cheap oil was over, as resources were becoming harder to find fast enough to meet runaway demand and producing countries tightened control over assets. He called for the U.S. government to develop an international energy policy in order to help meet the country's needs.

Two years later, resources are still in tight supply, although energy has stepped to the forefront of the political debate as popular opinion piles up against energy companies that have racked up record profits on the back of soaring oil prices and buoyant global demand. Increasing awareness about global warming has also made previously skeptical oil companies directly address the issue.

Exxon Mobil Corp. (XOM), which under its former leader Lee Raymond was a firm skeptic about the link between fossil fuel combustion and global warming, has finally recognized the role human activity plays in climate change under current chief executive Rex Tillerson. A growing number of experts, lawmakers and company executives are voicing support for federal legislation that would require electric utilities to reduce emissions of greenhouse gases.

More, Not Less, Oil And Gas

The Chevron executive called climate change "a huge challenge for all of us." He concurred with others in the industry that the private sector, policymakers and the scientific community should work together to create a framework for managing carbon dioxide emissions "based on rational, cost-effective and risk-adjusted solutions."

But in another parallel with the views of Exxon and others in the industry, O'Reilly said part of the solution in bolstering energy security for the U.S. lies in investing more, not less, in traditional sources of energy.

"Hydrocarbons are the most plentiful and economic forms of energy that we have," he said. "And the fact is, even if the use of renewable sources doubles or triples over the next 24 years, we will still depend on fossil fuels for more than 80% of global energy demand."

He said new technology has made drilling in once unthinkable areas - such the deepest waters in the Gulf Of Mexico - possible and renewed a familiar call for Congress to open up access to the Outer Continental Shelf.

"It's the height of hubris to declare 85% of the Outer Continental Shelf off-limits, while also criticizing the level of oil imports and calling for American energy independence," O'Reilly said.

The Chevron executive said current data about the prospects of the Outer Continental Shelf is very limited and based on technology that's more than 25 years old. "We've become paralyzed in a debate driven by entrenched positions and fuzzy data," he said.

As an example of how advanced technology has dramatically shifted the oil exploration goalposts, O'Reilly cited Chevron's "Jack" field. The most eagerly watched oil prospect in the deepwater U.S. Gulf of Mexico passed a production test with flying colors last September, paving the way for development of an emerging geological play that could contain billions of barrels of hydrocarbon reserves.

The well is located in what operators of crude oil and natural gas projects call the "lower tertiary," an ancient rock layer that extends for hundreds of miles beneath the Gulf of Mexico's seabottom. "The work at Jack was a great example of what can be accomplished when companies are given the opportunity to deploy investments and innovation," said O'Reilly.

Questions Bush's Ethanol Call

As well as delivering the industry's familiar battle cry for more access to domestic oil and gas resources, O'Reilly took issue with President George W. Bush's goal of reducing gasoline consumption in the U.S. by 20% in ten years by raising the use of alternative fuels like ethanol in the U.S. fleet mix. He said this goal couldn't be met with corn-based ethanol alone and will require technological advances that are still very much in the development stage.

"A more pragmatic approach suggests setting a goal of E-10, or 10% ethanol, on average per gallon of gasoline," he said. "That would effectively triple the volume of ethanol that was used in transportation fuels in 2006."

O'Reilly said this proposal could be achieved with the existing vehicle fleet in the U.S., is technologically viable and could lower imports of petroleum products in the U.S. by more than 25%. Bush's plan calls for a sixfold increase in the use of nonpetroleum gasoline.

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